President Javier Milei’s government knows it’s being watched. Not just by the “market,” that ephemeral force composed of endless financial transactions segmented into pesos and dollars, but also its major political and economic guarantors sitting in Washington: the Trump White House and the International Monetary Fund.
Argentina’s self-proclaimed “anarcho-capitalist” passed the first and most urgent test when he came out on top in national midterm elections in a context of intense political and financial pressure. Unforced errors together with a stellar victory for nemesis Axel Kicillof in Buenos Aires Province put Milei against the ropes. But a near-death scenario was averted with the explicit support of US Treasury Secretary Scott Bessent, giving Milei and his Economy Minister Luis ‘Toto’ Caputo much-needed breathing room. As the year enters its final stretch, spectators are looking to the Milei administration in order to figure out whether it will be able to deliver on multiple fronts, particularly whether it will manage to build consensus in Congress. Its success or failure on that front will set the stage for the level of difficulty Caputo will face when trying to secure financing to service its foreign currency obligations, which are in the US$10-billion range in the first quarter. Milei, therefore, depends on the much-derided political ecosystem and his capacity to lead successful negotiations, if he is to come out in one piece. The battle lines were already drawn in Congress.
The 2026 Budget bill, together with a trifecta of reforms, are the parameters by which those observing Milei and his team will judge them. The first round already showed a disputed front, with a partial victory of sorts in the Chamber of Deputies and a successive defeat in the Senate. In the lower house, presided over by Congress Speaker Martín Menem, libertarian negotiations were led by Interior Minister Diego ‘the Ginger’ Santilli, both members of the political inner circle that also includes top advisor Eduardo ‘Lule’ Menem, Cabinet Chief Manuel Adorni and Milei’s sister and Presidential Chief-of-Staff Karina Milei. The President promised to participate while the presence of controversial strategist Santiago Caputo is always a question-mark.
The team managed an early victory by passing the first budget bill in three years through the Chamber of Deputies, but lost a key battle over a chapter repealing emergency funding laws for the disabled and state universities. Since taking office, Milei has lost a series of tough political battles including overturned vetoes on both issues. Once again, Congress showed its teeth and the President barked. Milei raged as his team sought to figure out the next steps, trying to find out where to pin the blame. Indeed they had generated a substantial (and circumstantial) legislative majority of 132 votes that included La Libertad Avanza’s own deputies, those from Mauricio Macri’s PRO, a portion of UCR Radicals and some provincial governors. But they never secured the necessary votes for the disputed funds, meaning the national budget went from surplus to deficit, which is the original sin for the Milei administration. The President initially threatened to veto his own bill, even though he was ultimately convinced against it by ‘Toto,’ who knew that’s the kind of behaviour that would spook the aforementioned observers.
The question as to whether Milei can succeed in building circumstantial majorities that give solidity to his reforms package is key for said spectators. The early days of his surprise victory in 2023 were marked by great uncertainty as to how a total outsider would be able to conduct and lead the state out of the hole it was buried in. There were doubts, given its lack of legislative strength, and poor regional presence. Given that slots on candidates lists were sold to raise funds for the campaign and probably other less “noble” causes, the quality and depth of Milei’s potential team had a huge question-mark hanging over their heads. Some suggested the President’s temperament rendered him unfit to govern and this, coupled with the level of ambition of his reform agenda, would result in an early exit from the Executive. Macri, who had lent his support to the candidate in the final stage of the campaign – together with the political apparatus and the funds to keep it running – was looking for a way in. Vice-President Victoria Villaruel looked along, quietly intrigued.
Rather than caving, Milei and his team doubled down. He began to absorb Macri’s PRO bit by bit, starting with its presidential ticket (Patricia Bullrich and Luis Petri). Leveraging anti-Kirchnerite sentiment, he secured the support of PRO, some Radicals and centrists, together with provincial forces responding to friendlier governors, to pass legislation like the ‘Ley de Bases’ mega-reform package, while at other times defending his emergency decrees and vetoes. He was pragmatic, extracting concessions from potential allies while continuing to lambast the “caste” in order to sustain popular support. And inflation began to come down. The honeymoon period appeared eternal and re-election, as the basis of a Milei hegemony, expected.
The physics of politics indicates that everything that goes up must come down and so did Milei. While he always retained strong popular support, his polling figures started to suffer from a series of events, many considered unforced errors. The President and his closest political allies continued to use aggressive rhetoric and insults to refer to anyone that wasn’t fully aligned ideologically, or displayed total allegiance. Corruption scandals, starting with the ‘$LIBRA’ crypto fraud, began to mount, followed in spectacular fashion by leaked audio voicenote recordings from the President’s personal lawyer, Diego Spagnuolo, that linked Sister Karina to bribes and kickbacks at the ANDIS national disability agency. Milei had already united the political ecosystem against him when he vetoed bills increasing the budget for public universities and calling for emergency funding for the handicapped.
The economy grinded to a halt, with the disinflation process stalling and activity in recession territory. Market participants smelled the blood, and punished the Milei administration for the faulty design of economic policy plans, particularly the lack of foreign reserves in the Central Bank and Argentina’s overvalued peso. As usual, the peso-dollar exchange rate began to move aggressively. Politically, the Casa Rosada suffered a series of electoral defeats in national midterms including a big takedown in Buenos Aires Province at the hands of a weakly formed Peronist coalition that included the aforementioned Kicillof and ex-president Cristina Fernández de Kirchner.
President Milei got a second chance, winning the national midterms by a margin that surprised even the Casa Rosada. They must now deliver on their promises, which will most definitely be associated with a material improvement in people’s wellbeing. Anti-Kirchnerism, together with fear of inflation, won’t be enough to sustain the President’s popular support, particularly as the effects of his “chainsaw austerity” continue to reverberate through the economy. This means that Milei and Caputo must comply with the IMF’s requests to push a reform agenda with greater solidity via political consensus and accumulate reserves. These will be directly tied to the value of the nation’s country risk premium, which determines at what cost Caputo can secure financing in order to pay the debt. And this, in turn, will be fundamental in maintaining the support of the United States where Bessent has already said that the idea is for Argentina to enter international debt markets and support itself. Macroeconomic stability is fundamental if the administration is to engineer a rebound in activity that ultimately is reflected in growing wages.
President Milei almost vetoed his own budget bill, an inauspicious start to the second half of his term. Now, he will have to prove that they have what it takes to remain pragmatic and “consistently dynamic,” as he likes to say. Or whether he will fall prey to his own passions, and the vices of the “caste” he so loves to deride.
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